Porter’s five forces model
Introduction
The way of doing business and the scale of companies in different industry is continuously changing, and at the same time; we can observe that the business environment is also changing faster than even before. The business environment includes two main forces, external and internal. The external forces can have great influence on business and uncertain for the market. While internal forces are within the command of industry. In such case it is essential to analyse these environmental factors thus the business organization compete with other competitors. Porter’s model is considered as an important tool to analyse the business environment that shows the five forces that affect the competitive environment of a business organization, which affects profitability.
Porter’s five forces model
Porter’s competitive model focuses on 5 specific elements that help to understand, whether or not a business can be profitable or sustainable, on the basis of other business existed in the industry (Hubbard, Rice, & Galvin, 2015). A healthy and well organized industry structure should be as much as important to strategist as their company’s own position (Martin, 2017). The five fundamental competitive forces of porter’s model are as follows: (1) buyer’s negotiating power (2) negotiating power of supplier (3) threats of substitute (4) entry of new competitors (5) competition among the existing players. Porter’s competitive model is so useful and often used business strategy technique which is more reliable and realistic alternative to the widely used SWOT analysis (Huggings & Ijushi, 2011).
Application of the model
To analyse the industrial environment with the help of porter’s model in Qantas airlines which is one of the largest carrier service of Australia and second largest of the world. Mergers and acquisition helps in increase the competition in aviation industry. The competition in airways industry is continuously increasing specially through mergers and acquisitions. In 2003, by following a two brand strategy to compete with competitors, Qantas establish its low cost airline ‘Jetstar’. With ‘two brand strategy’ Qantas group can compete with small players in the market and predict market opportunities and can offer the best services to its customers and create the competitive advantage over its competitors. After this step of Qantas group, there are number of new competitors arises in the aviation industry, and they follow the strategy of Qantas and affecting the market share with low price offering (Mouawad, 2010).
Application of the model
Therefore, it is tough to enter in aviation industry due to cut throat competition, and high barrier, and it also requires a large capital investment. In the era of the low profit margins and heavy competition, it is difficult to make adequate profit in the industry. Therefore, it is so usual for the airways companies to show losses in their balance sheet. So, it is difficult for a new entrant to enter in the market because of losses in the initial phase of the operation. Therefore in the initial phase of this industry a new player must be able to handle this pressure. Another barrier for the new players in the Australian aviation industry is limited slots on airports for landing (CGMA, 2013).
There are number of alternatives available for long distance travelling such as boats, trains, boats, cars, and cruise, these are normally economical than airways transportation. However aviation industry has absolute advantage over others considering of time consumption. Therefore, many peoples prefer the Arial transportation in a compare to other means of transportation. Thus, the threat of substitute is comparatively low (Srisaeng, Wild, & Baxter, 2014).
There are many big suppliers for large airlines but among them Boeing and Airbus are two big suppliers for the large airlines like Qantas. Qantas expend huge money on the next generation aircraft and fuel efficiency; such as Boeing 787 Dreamliner, and Airbus A380 (Qantas, 2017). Dependency on fuel prices for its profit margin, Qantas has to suffer with high supplier’s bargaining power. The high rises in Price of fuel can easily affect the profit margin of Qantas airways and can also affect the fuel efficiency. Due to the less number of suppliers and continuous demand of fuel with fluctuation in the price of fuel, we can say that the supplier’s bargaining power is quit high (Thompson & Gamble, 2013).
The consumer’s buying bargaining power with Qantas is little high because of their price based preferences. There are number of airways that provide same service in comparatively low prices that attract customers and offer them the best return of their money. Due to the great availability of advanced technology tools such as Flight Centre and Sky Scanner consumer’s ability to compare prices and flight services before making their final selection. So, the bargaining power of the buyers is very high and the switching cost for consumer is very low.
Usefulness and Limitations
According to me, through the strategic planning and capabilities of the best use of the resources, Qantas gain competitive advantage over its competitors. The company can face its external environment challenges and win. Besides the bargaining power of provider is really high in the market and which destabilizes companies in aviation industry to exercise control over its provider. The airways companies are real competitors and as a result of it the margin of profit is less. The new entry cost in airways industry is also too high. So, the number of new competitors in international aviation industry is comparatively low in a compare with other industry. Qantas can dominate in this market but for that Qantas can reduce the prices according to the industry standard prices
In the end it can be concluded that the Qantas group has adopted the partnership strategies and make alliance to make a dominating place in aviation industry. But there are some threats that constantly affect Qantas airways, such as cut throat competition, customers bargaining power, fuel cost, alternative transportation, and low cost airlines. With using two brand strategies and applying their core competencies and its diversified quality services, Qantas has remained strong in the aviation industry. To compete with both international and domestic market competitors, the Qantas group need to apply better and effective strategy planning to maintain the group’s position in aviation industry and prepare for the unfavourable changes which always threatening to this industry.
References:
CGMA, (2013). Porters five forces of competitive position analysis. Retrieved from: shttps://www.cgma.org/resources/tools/essential-tools/porters-five-forces.html
Hubbard, G., Rice, J., & Galvin, P. (2015). Strategic management: thinking, analysis and action (5th ed.). Melbourne, Australia: Pearson Australia.
Huggings, R. & Izushi, H. (2011). Competition, competitive advantage and cluster. (1st ed.), New York Oxford: Oxford university press.
Martin, M. (2017). Porters five forces: analysing the competition. Retrieved from: https://www.businessnewsdaily.com/5446-porters-five-forces.html
Mouawad, A. (2010). Pushing 40, southwest is still playing the rebel. New York Times. Retrieved from: https://www.deseretnews.com/article/700099601/Southwest-Airlines-Pushing-40-still-playing-the-rebel.html
Porters five force model, (2018). Image source. Retrieve from: https://cpslearning.regis.edu/multimedia_exemplars/images/1_5_3_porters_forces_sm.gif
Qantas Annual review, (2017). Position for sustainability and growth. Retrieved from: https://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgyw/file/annual-reports/2017AnnualReview.pdf
Srisaeng, P., Baxter, S.G. & Wild, G. (2014). The evolution of low cost carriers in Australia. Journal Aviation, 18(4).
Thompso, A. & Gamble, J. (2013). South west airlines in 2010: Culture value and operating practices. Retrieved from: https://www.bartleby.com/essay/Southwest-Airlines-in-2010-Culture-Values-and-PKPJDZD386TA
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